Cover Story: 7 Habits of Highly Efficient Supply & Demand Chains

by Interview conducted by Andrew K. Reese On May 1, 2005

Stephen Covey's The 7 Habits of Highly Effective People first appeared on bookstands in 1990 and went on to sell millions of copies, offering a formula for personal and professional success based on a "paradigm shift" in how people perceive the world and themselves, a focus on character and principle, and the practice of the oft-repeated seven habits.

Seeking to apply the "7 Habits" approach to the supply chain, Supply & Demand Chain Executive asked Jim Tompkins, CEO and founder of Tompkins Associates, a Raleigh, N.C.-based consultancy and systems integrator, to reflect on his 30 years of experience helping companies achieve supply chain excellence and to identify those best practices, or "habits," that are key to ensuring success in modern supply and demand chains. Our conversation with Tompkins began with the first best practice on his list:

1. Communicate

Jim Tompkins: The first is "Communicate," and the best practice here is to communicate to ensure that all the departments within your company and all the links within your supply chain have a common understanding of what "supply chain" means and what the objectives are, and that everyone has a common understanding of the "what, why, who and where." There should be no surprises as to what you're trying to accomplish.

The old ways of thinking, where I focused within my department or within my link, are totally irrelevant today. We have to melt the boundaries and think horizontally all the way from the original raw material supplier to the ultimate end user. We need to think as one to provide the end customer with the ultimate in satisfaction with our product, service and pricing. We have to be 100 percent focused on making that customer delighted, and so it's an integrated, unified, end-to-end pursuit to create customer satisfaction.

S&DCE: What are the barriers to achieving this particular best practice?

Tompkins: The first is momentum, because this isn't how people have done business. People have been promoted by selfishly pursuing very narrow goals that are vertical as opposed to horizontal. If my job is to take 20 percent out of the cost of transportation, it doesn't matter that I mess-up distribution, it doesn't matter that I mess up accounts payable. I am going to accomplish my very selfish, narrow goal and make that happen.

The second aspect would be cultural, and I think there are three types of culture. There's static, consistent culture, where, if it ain't broke, don't change it, don't rock the boat, do what you've always done. This is how we've done it for twenty years and we've always been successful, so don't change anything. You're very static, you're very consistent, what you do is what you've done, no changes at all. The second culture is dynamic inconsistency, where there's a tremendous amount of change but very little improvement because there's no overall understanding of what we're trying to accomplish in the supply chain. Abe Lincoln's quote is, "Let us not mistake change for progress." We've got a lot of change going on, a lot of activity, a lot of turning, but there's no real progress because we aren't all buying into the same well-communicated, consistent thought process on where the supply chain is headed. And then the third culture is dynamic consistency, where we're dynamic and continually making improvements based upon a shared, consistent vision of what we're trying to accomplish with the supply chain. It's only with the dynamic consistent culture that you can overcome the momentum of doing it the same old way and achieve excellence in the supply chain.

S&DCE: Is there a technological aspect to the challenges in realizing this best practice?

Tompkins: With this particular best practice, technology is not the challenge. Now, if you're implementing technology, the challenge can be that we all need to have the same perspective on what we're trying to accomplish with that technology. But it's not the technology per se, it's the communication, the education, the consistency, the shared vision, the direction that is really what we're getting at with this particular best practice.

2. Benchmark

The second best practice is Benchmarking. As a first step toward identifying opportunities for supply chain improvement, we need to understand what our competitors are doing, what our industry is doing, what the best-in-class companies are doing, so that we have a framework against which to establish improvement.

Typically organizations will continue to do better on the things they already do well. For example, if you take the transportation piece, I've seen companies that do an absolutely awesome job on managing the parcel spend. They really have this down to a science, and the guy that runs the UPS or Federal Express portion of their business has really got this fine tuned, and everyone in the company knows that Bob does a great job on parcel. The tendency is that next year Bob will continue to be innovative and creative, but then the people who are handling dedicated freights, less-than-truckload, ocean, truckload and intermodal are doing a terrible job.

If you look at bodybuilding, the old bodybuilding philosophy said that you should build certain muscle groups to be very, very, very strong. This is contrary to Arnold Schwarzenegger, who adopted a different philosophy. He said, "Every month I'm going to evaluate my body to identify my weakest element, and for the next month I'm going to really focus on developing that weakest element." That's what we need to do in the supply chain; we need to make sure that we identify what our weakest elements are and work on those. The only way to really identify those is to compare them to the industry, competitors and best-in-class, and then see how we're doing. If there are six subjects and we're getting 100 points on three of them, 90 points on two of them and 60 points on one of them, we need to address our attention to the area where we're getting 60 points, and the only way to identify that area is through a robust process of benchmarking.

S&DCE: What are the challenges here? Is momentum again a problem?

Tompkins: Yes, momentum, and then the hesitancy to be open. Some people say, "Well, the problem with benchmarking is, if I want to see your data, I have to be able to show you mine." There's a lack of security, and I don't want to tell anybody anything about my operation and so I'm not going to be able to benchmark. You've got to get over that. You've got to realize that you're either going to join the people that benchmark and therefore get better, or you're going to keep your data extremely secure but guess what, no one's going to care because you are going to go out of business.

S&DCE: Does there need to be a top-down focus on this as part of the culture of a company?

Tompkins: Absolutely, yes. In fact that's true with both of the best practices that we've discussed so far, because a focus on communication, education and vision has to be articulated from the top. You don't get a supply chain vision starting in the middle, because there's just no way to overcome the boundaries that exist, and so you need someone at the top busting down those silos.

3. Assess and Partner

The third is a combination of assessment and partnership. For assessment, after we've done the benchmarking and we know where the opportunities for improvement are, we need to ensure the readiness to move forward. I have defined six levels of Supply Chain Excellence (see sidebar "Six Levels of Supply Chain Excellence").

So first we benchmark to determine our strengths and weaknesses, and then we've got to do this assessment process to identify which areas to improve. If my organization has two areas at Level 2 and everything else at Level 3, 4, 5 and 6, I've got to work on those two Level 2s. Once I get everything in the organization at or above a Level 2, then I'm ready to start pursuing visibility with my supply chain links. The challenge here is that you can't do visibility with someone who hasn't already reached Level 2 as well. If I'm trying to do visibility with a supplier who's at Level 1, they're going to be giving me bogus data, because they are not functioning as a link and therefore their selfishness is going to have an impact on me. So I need to make sure that I pursue visibility only with organizations that have reached Level 2 as well.

The partnership element begins when we get all areas of the company up to Level 3, where we're partnering to do visibility. Then at Level 4 we're partnering to collaborate, and at Level 5 we're partnering to synthesize. Partnering is a process of thinking more about us and less about me. Partnering is the process of being married. For me to be happy, I have to have a good marriage it's not that I'm this benevolent person; it's that I want to be happy, but I can't be happy unless I have a happy marriage, and therefore the marriage is what's most important. The same thing applies in the supply chain: You really have to take a different perspective when you're partnering for visibility, partnering for collaboration or partnering for synthesis.

4. Prioritize

The next best practice is Prioritize. In this step, we need to take the benchmarking and the assessment activities and use them to identify the specific processes and tasks that we need to improve. The challenge is that you can't just come along and say, "I need to work on transportation." That's a nice beginning statement, but you need to understand what it is that you want to work on with respect to transportation. We can work on transportation from an operations point of view; or from a technology point of view, and look at installing transportation management systems or routing software; or from an outsourcing point of view, and look at what we should no longer do internally. So this prioritization is based upon the assessment and the benchmarking that take place beforehand.

5. Lead, Don't Just Manage

The next best practice has to do with Leadership. First, we need to understand the difference here between leadership and management. Management is an important task. But, unfortunately, we've got plenty of management in most companies, plenty of people to measure and control and perform tasks. What we need more of is leadership. In most organizations today, what you find is that they're about 95 percent management and only 5 percent leadership, and we need to have much more balance there. Fifty/fifty would certainly feel good to me.

Leadership is an evolutionary process. I believe in the process that I call peak-to-peak leadership. The old statement that you've probably heard, success breeds success, is absolutely not true. The natural order of life is that success is followed by failure. Benjamin Franklin said, "Success has ruined many a man." Winston Churchill said, "Success is rarely final." And basketball coach John Wooden said, "The true test of a champion is what he learns after he wins the championship."

The tendency when you're at your peak is to protect what you've done, not to change things, to write budgets, procedures and manuals and not rock the boat. We say, "Wow, things are really happening here." Yes, they're really happening, but what's happening is that you're going downhill; because the people who aren't No. 1 are being innovative and creative, and they're passing you by. All of a sudden you wake up one morning, and you're no longer No. 1. In fact, you don't even make the Top 20. What do you do? You fire the CEO, you bring in a new guy who's innovative and creative, you climb back to the top, you protect it, you go diving back to the bottom, you fire people and so on. The natural order of life is peak to valley, peak to valley. As a leader, your role is to reinvent yourself when you're No. 1. You have to be aware that, because you're the best, you are the long shot, you are the underdog. You need to recreate and alter what you're doing, and that's very difficult.

The supply chain is a perfect area to apply this, because the supply chain is complex, it's multifaceted and it's real easy to get complacent with where you are. Then, all of a sudden, your competition passes you up, you're in the valley and now you have to rebuild from the ground up. The leadership that's required is to take the education, the communication, the benchmarking, the assessment and the prioritization and to make sure that we constantly are moving on to the next new thing.

People say to me, "Jim, you're always taking us someplace new, why can't we just say where we are for a while?" And the answer is: entropy. If you don't go forward, you will go backwards. You have to keep moving on to the next level and the next level and the next level. To do that requires leadership to think outside the box, to challenge what we have done, to alter what we've done, to take some risks and then make some good stuff happen.

6. Add Value by Focusing on Core Competencies

The next best practice addresses Core Competencies. We need to focus our attention on the things that truly add value to the customer and therefore give us market position. If we don't focus on the core competencies and we try to do it all, we won't have time to improve, provide leadership and go peak-to-peak on the things that are really important to the customer, and therefore we will fail.

The challenge is that organizations outsource things that are not their core competency, but they don't have a core competency in outsourcing. Oftentimes someone says, "OK, let's outsource our warehousing and transportation." They take the guy who presently runs transportation and distribution, and they give him the responsibility of outsourcing that task. This guy may be an expert at transportation and distribution, but he's not an expert at outsourcing, and he's going to mess it up. Then you wind up spending more money and having less customer service, and spending more management time to straighten the mess out, than if you had just done it internally. It's absolutely critical to develop a competency in outsourcing and then grow an outsourcing relationship that's consistent with the supply chain.

S&DCE: Are there specific best practices around outsourcing that people can use?

Tompkins: Absolutely. In fact, there's what I call an outsourcing lifecycle that has three phases to it. There's the dating game, there's the honeymoon, and there's the happy marriage.

The dating game has two steps: the process of defining requirements and developing requests for proposal, and the process of selecting which outsourcing partner you should work with. There are very clear guidelines and rules on how to do that well.

The honeymoon consists of two steps: forging the legal relationship, which is taking the request for proposal and translating it into a contract that says what is going to happen, how you're going to measure it and how you're going to pay for it and so forth; and then actually implementing the relationship.

The happy marriage begins after the honeymoon, where you're getting down to a relationship that really works, where you have the right processes in place for handling exceptions, processing invoices, processing communications, reporting back metrics, dealing with gain sharing. We're really gaining an understanding of how to manage the outsourcing relationship over time and how to make the two parties function as one, where the objective is for the outsourcee and the outsourcer to both be successful and to accomplish their needs.

There's a whole series of best practices around managing an outsourcing relationship, dealing with everything from how to define your requirements to how to renew for the second and third phases of the contract. In fact, in May my latest book comes out. It's called Logistics and Manufacturing Outsourcing — Harness Your Core Competencies. That book focuses on how you do each one of these steps.

7. Continuously Improve

The last of the seven habits that we need to adapt for the overall supply chain is Continuous Improvement. We can never stop pushing for the next level of performance. We need to continuously go through these other six habits of understanding how we communicate, benchmark, assess, prioritize, provide leadership and focus on our core competencies, and then do it again and again and again. Step 7 would be, return to Step 1 and do it again. You've got to do it faster, in a more robust way and at the next level of detail. That's difficult because you're changing how companies work.

In retail, when the mass merchants asked the baby food companies to give them a six-pack of baby juice with two orange, two apple and two cranberry, the baby juice people said, "Don't they know how we run our factories? We run apple juice when the apples are ripe, and then four months later, when we're running cranberry juice, there's not an apple in the house." Their thought process was that the packaging hall had to develop the finished product. Well, the packaging hall needs to produce bottles of apple juice, but you don't have to put the wrapper on the bottle, and you don't have to put the bottle in the final package for customer consumption. You store naked apple juice in bottles in the warehouse, and then when the request comes in from the customer, you wrap it in any way they want it. And if they say they want three apple juice and three cranberry juices in the same six-pack, no problem. So they had to change their whole thought processes around what was manufacturing and what was distribution, because now distribution is doing the packaging of the final unit as well as doing the labeling on the individual jars. That gave the juice company much more flexibility to get the product to the customers in the way that the customers wanted it. That's continuous improvement.

S&DCE: A follow-up question: In your book, No Boundaries: Moving Beyond Supply Chain Management, you talked about how your conception of supply chain had evolved over time. Has your conception of best practices evolved in the same way?

Tompkins: My thinking on best practices has very clearly evolved. Five or six years ago, best practices most often had to do with metrics. Now we've progressed to where best practices are truly approaches, processes or thought processes as opposed to metrics.

Another interesting thing about best practice is that, by definition, when you define a best practice, you also define a worst practice. By pursuing best practices you're able to see how an organization functions and where the worst practices are, and that's typically where the greatest opportunities are for improvement.

Then the last thought on this is that — consistent with my concept that one of the best practices is continuous improvement — best practices too must continuously improve. They will evolve as we learn how to do things. The best practice a couple of years ago for a supply chain would have been that you need to have a warehouse management system, a transportation management system, automatic identification and visibility into the consumption of the product at the ultimate consumer, as well as the visibility into supply with respect to when products are going to arrive and so forth. Today, that best practice is still important, but we're already there — most folks who are even beginning the discussion of best practices have achieved that. So it no longer becomes the best practice, it now becomes one of the things you must do to even get in the game. The types of practices that I'm talking about now are much more process-orientated as opposed to technique- or technology- or metric-orientated, and I imagine that will evolve into something different as we go forward, but I don't know what it'll be.

S&DCE: One final question: do you find on the technology side that companies tend to see technology as the answer to how they can implement these processes that you've talked about, as opposed to being an enabler of these processes or one component of how they can enable those processes.

Tompkins: It depends. Some people get wrapped up in technology and forget that technology is the servant of the process. They say, "We've installed the transportation management system." Well, yes, the computer code does work, but the people don't know how to use it and don't have the right data in it and therefore it's not giving me the right answers. There is very clearly a problem where technology is "installed but not truly implemented." We need to go beyond the bits and the bytes to deal with the processes and the people and make sure that we first design the right process, and then that we use the systems to facilitate the people implementing the correct processes. I'm all for technology, and I spend an awful lot of my time selecting and implementing technology in the supply chain space for my clients. But the reality is, to make it really work, we need to make sure that it conforms to the requirements and that we have the people that can make these tools really hum for us. So yes, absolutely, technology is an enabler and not an end unto itself.

Sidebar: Six Levels of Supply Chain Excellence

Level I, Business as Usual — working hard to instill best practices in individual departments within your link.

In conjunction with the feature article "7 Habits of Highly Successful Supply & Demand Chains," we also took an informal survey of the supply chain community to uncover the most common mistakes enterprises commit in the implementation of supply chain technologies. We offer a selection of the submissions below.

1. Failing to manage and sustain the adoption of the new technology. "Establishing clear benefits and changing the team's measurable business objectives (MBOs) to reflect those benefits must be integral to deploying new technology," says Singh Mecker, founder and CEO of Valdero.

2. Enabling bad processes. Technology projects can serve as catalysts for broad-based operational improvements and lasting change, but only if the necessary process and organizational enhancements are synchronized with the deployment of new systems, says Jim Fry, North America supply chain leader at Unisys. Traci Hanes, supply chain system analyst with the Information Technology Shared Services Group at Boeing, notes that, too often, "enabling technology such as [enterprise resource planning (ERP)] is assumed to take the place of good processes." Finally, Jon W. Hansen, president and CEO of e-Procure Solutions Corp., writes: "Creating solutions that incorporate actual front line procurement expertise is becoming increasingly important. Without this knowledge, the majority of initiatives will ultimately fall into the one step forward, two step back implementation routine."

3. Setting unrealistic goals. Haste makes waste, says Mark Rowe, a strategic accounts executive with ShipLogix, who laments that too many companies cut their deployment time too short. The result is that a six-month deployment may get done in three months, but the company then spends two or three times that fixing the mistakes committed along the way.

4. Trying to enable everything at once. The biggest mistake companies make in applying technology to solve their supply chain challenges is trying to solve all their problems in one fell swoop, says John Martin, senior vice president for strategy and technology at IQNavigator. Triage your various challenges to identify priorities, Martin says, and then design a program with a tailored approach to fit the needs of the stakeholders involved and any process or compliance requirements, and identify the technology partner that can deliver the best overall results.

5. Failing to involve supply chain partners in the implementation process. When companies decide to implement new software to integrate their supply chain, many times not getting their vendors or suppliers involved early in this initiative can spell disaster, advises Steve Galke, director of industry solutions with Catalyst International. "Gaining a consensus early reduces the risk of mediocre participation, increases the integrity of shared data and reduces vendor/supplier fears of losing control over their competitive advantage," Galke says.

6. Believing in the infallibility of systems. Despite forecasting and planning technology, the unexpected still occurs, cautions Steve DeFrancesco, vice president of operations with Timogen Systems. And Pamela Lopker, chairman and president of QAD, warns against making promises based on information coming out of systems that may or may not be accurate.

7. Failing to enable the supply chain. Supply and demand chain management must embrace the new capabilities available in current technologies, believes Steven D. Duket, solutions manager with MAPICS. Thomas Sanderson, president and chief operating officer of Transplace, warns that companies too often have preconceived notions of the value of undertaking a particular type of supply chain initiative.

The editorial staff thanks all those who contributed their thoughts on the "7 Deadly Sins."